Russia says no deal yet on oil production cut

Washington | Donald Trump is trying to get the world to cut oil production by 10 million barrels a day in an effort to end a market-share war that sent crude prices plunging to the lowest levels in two decades.

On Thursday Trump shocked markets by tweeting that he expected Russia and Saudi Arabia alone to cut about 10 million barrels – or roughly a tenth of global petroleum, sending oil prices soaring.

A person familiar with the discussion later said Trump, after a call with Saudi Arabia Crown Prince Mohammed bin Salman, was hoping to get other oil market participants to contribute to that cut, too. A second person familiar with the situation said Trump's goal is purely aspirational and will ultimately hinge on whether Saudi Arabia and Russia can reach a deal.

Russia has contradicted President Trump's claim a deal has been done to cut production. Andrey Rudakov

Any across-the-board reduction of this size will face serious challenges. Saudi Arabia hasn't voiced outright support for the move and instead called for an "urgent meeting" of the world's oil producers to discuss a "fair agreement". The response signals the country will only cut output if others do so and raises the question of whether the Trump administration is willing to cap America's own production to reach a global accord.

Russia's response was arguably harsher. In his tweet, Trump said he had spoken to MBS, who had in turn spoken with Russian President Vladimir Putin. But a Kremlin spokesman, Dmitry Peskov, said the conversation hadn't happened and confirmed that no production cut had been agreed to with the Saudis.

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An OPEC+ delegate familiar with the conversations similarly says Saudi Arabia and Russia have yet to agree to production cuts, let alone their size. Any proposed curbs will be conditioned upon every other major oil producer also agreeing to reduce production, the person says, asking not to be named discussing diplomatic conversations.

Meanwhile, Trump told reporters on Thursday that he expected a deal to be reached soon.

"It would be great for Russia, it would be great for Saudi Arabia – I hope they make that deal but that's what they told me," he said. "Can something happen where it doesn't happen? I guess? In which case there's another alternative, but I'd rather not see the other alternative."

"Something like this was inevitable because there is nowhere to put the oil."

The White House has considered tariffs on foreign oil imports to protect US producers, though the idea is opposed by some top Trump advisers led by Larry Kudlow, the director of the National Economic Council, according to people familiar with the matter.

Saudi Arabia wants countries that aren't part of the OPEC+ alliance to join in any future pro-rationing. Although Riyadh hasn't drawn up a formal list, in the past OPEC+ had invited big American oil producers, Brazil and Canada to its meetings. Canada and Brazil have previously declined.

In a rare move for a state energy regulator, Ryan Sitton – one of three commissioners at the Texas Railroad Commission that oversees the state's powerful oil industry – said on Twitter on Thursday that he had discussed a 10 million-barrel-a-day cut to global supplies with Russia Energy Minister Alexander Novak and planned to speak with Saudi Arabia's energy minister. Sitton has been pitching a plan for days that would have the US and OPEC working to cut production together.

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The idea of a US production cut, probably executed by capping exports, is also on the table at the White House, though many oil industry representatives have warned that the approach would cause the US to cede the very "energy dominance" Trump has repeatedly celebrated.

A chief argument is that dialling down US production is not aligned with the President's "America First" agenda, says a person familiar with the matter who asked not to be named discussing lobbying strategy. For his part, Trump said on Thursday that he had not discussed the possibility of US oil production cuts.

"It's not clear what mechanism the White House could use, and I don't think a lot of the tools that have been publicly reported would have the effect of cutting production," says Katie Bays, co-founder of Washington-based Sandhill Strategy.

Export limits

Restricting exports would likely be the most effective method of scaling down US production, she says. That, coupled with letting producers use the government's Strategic Petroleum Reserve as oil storage, "would functionally seem to work for the next few months to take oil off the water".

Before Thursday, Trump had signalled some ambivalence about the oil price war. He's remarked that low prices at the pump for American consumers amounts to a tax cut, while also saying he doesn't want the US shale drilling industry to collapse.

Conflicting messages from the Trump administration – the President has said he likes low petrol prices, while Secretary of State Michael Pompeo and others have urged the Saudis to cut production – have undermined the US government's leverage, one person familiar with the discussions says, asking not to be identified because of the sensitivity of the matter.

The White House had said that, in a call with Putin earlier this week, the two leaders agreed that "stability" is important for energy markets.

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Trump was scheduled to speak with the leaders of US oil producers and refiners on Friday. One industry executive says the President may have been motivated to remark on the surplus oil production because the US is running out of physical space to store crude.

"I think something like this was inevitable because there is nowhere to put the oil," says Dan Eberhart, a Trump donor and chief executive of drilling services company Canary Drilling Services. "I think this is out of necessity, not out of gamesmanship."

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